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HMRC internal manual

Inheritance Tax Manual

Payment methods: payment by IHT direct payment scheme

From 31 March 2003 a new means of payment is available to taxpayers called the IHT Direct Payment Scheme (DPS).

It has increasingly become a bone of contention with personal representatives (IHTM05012) that they have to borrow money to pay tax on delivery of form IHT400 when the deceased’s bank account(s) contain enough money to cover the payment. Some institutions will write a cheque drawing on the deceased’s funds, but this option is rarely available for personal applicants (IHTM02161).

Following negotiations with the British Banker’s Association and the Building Societies Association, we have now agreed this scheme whereby participating institutions will, on receipt of instructions from the taxpayers, transfer money electronically from the deceased’s account(s) to our bank account.

Taxpayers who wish to use this scheme will contact us before delivery to obtain a reference number. They may do this online or by sending in IHT400 form IHT422.

Then, when they are ready to apply for a grant, they will fill in form IHT423, which is the authority to the bank/building society to transfer the money. They send that form to the bank/building society at the same time as they send IHT400, or other form of account, to us.

The bank/building society will transfer the money electronically, and when we receive notification of the payment, we will process the IHT400 in the usual way. The whole process will take a little longer than payment by cheque, but the saving in time and money for the taxpayer in arranging a loan, should more than offset the slight delay.

There are separate instructions you must follow when making a repayment of tax (IHTM31667) paid using DPS.